Dissolving Limited Partnerships

By Jeff Franco J.D./M.A./M.B.A.

The laws of each state govern the creation and dissolution requirements of limited partnerships that operate within its jurisdiction. However, 18 states and the District of Columbia follow the Uniform Limited Partnership Act of 2001, thereby creating some uniformity in partnership dissolution rules. If the limited partnership you’re dissolving operates in a different state, the rules are fairly similar but differences may exist. Be sure to research the laws of your own state.

The laws of each state govern the creation and dissolution requirements of limited partnerships that operate within its jurisdiction. However, 18 states and the District of Columbia follow the Uniform Limited Partnership Act of 2001, thereby creating some uniformity in partnership dissolution rules. If the limited partnership you’re dissolving operates in a different state, the rules are fairly similar but differences may exist. Be sure to research the laws of your own state.

Limited Partnerships

The limited partnership is a modern variation of the traditional general partnership structure for operating a business. Under traditional general partnership rules—which are still used today—each partner is jointly liable for the acts of other general partners provided it’s in the ordinary course of partnership business, as well as all debts and obligations of the partnership. A limited partnership, on the other hand, has both limited and general partners, but the limited partners aren’t liable for the acts of other partners or for partnership debts—their risk is limited to the investment or contribution they make to the partnership. General partners always have the right to participate in managing the business, whereas limited partners don’t.

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Events Requiring Dissolution

Most states don’t limit the life of a limited partnership; typically, it continues to exist unless an event occurs requiring the partnership to dissolve. If the partnership agreement—which is the document that governs all aspects of the limited partnership—requires the partnership to dissolve if a specific event occurs, the partners must wind up the business and cease operations if the event does in fact occur. In the absence of a dissolution clause in the partnership agreement, a limited partnership may need to dissolve if all general partners and all limited partners who own a majority of the rights to receive distributions from the partnership agree to dissolve. Dissolving the limited partnership may also be necessary when no limited partners exist for 90 days or more and in some cases when a general partner disassociates from the partnership.

State Dissolves Partnership

State governments can also force dissolution of a limited partnership when the business fails to comply with certain governmental requirements. For states that have adopted the ULPA, this can occur when the partnership is more than 60 days late paying taxes, fees or penalties it owes to the state, or if it fails to submit its annual report. However, the partnership can apply for reinstatement within two years of the act causing government dissolution.

Winding Up Partnership

Dissolving a limited partnership always requires the general partners to wind up all business affairs. For the most part, this involves settling existing debts and liabilities of the partnership, selling business assets and distributing remaining funds in accordance with the partnership agreement or pursuant to state law. The ULPA also allows the limited partnership to file a certificate of termination with the appropriate state agency to provide formal notice that the partnership no longer exists. However, states that don’t follow the ULPA—such as Delaware—allow for the filing of similar certificates that provide the same type of notice, which can ultimately protect general partners from liabilities that arise after dissolution.

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Ending a Partnership in Illinois

References

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Dissolving Legal Partnerships

A general partnership is automatically formed under state law whenever two or more persons or business entities agree to do business together and to share profits and losses. If no written partnership agreement is created, state default rules govern the terms of the partnership. States also allow general partnerships to obtain limited liability by filing documentation with the state government. Partners must follow certain procedures to dissolve a partnership without liability.

Michigan Business Partnership Laws

Michigan has adopted the Uniform Partnership Act and Revised Uniform Limited Partnership Act, located in Chapter 449 of Michigan Codified Law along with several other partnership act provisions. This Act addresses a wide range of partnership issues, such as the types of partnerships available in Michigan, establishment of a partnership, winding up a partnership, and the rights of partners. Attorneys, online document preparation websites, and Michigan’s Bureau of Commercial Services offer assistance for persons wanting to establish partnerships under Michigan law.

How to Convert a General to a Limited Partnership

A general partnership is a contractual agreement between two or more people or entities to conduct business together. Since each partner in a general partnership remains personally liable for all business obligations, the law does not require it to file a formation document that notifies the public of its status as an independent entity. A limited partnership allows some of the partners to enjoy limited liability, meaning their personal responsibility for business debts is limited to the amount of their investment. States that allow the formation of limited partnerships require them to register with the state by filing a certificate of limited partnership, so the public can identify the parties legally responsible for business activity.

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